Eigerman v. Putnam Investments, Inc.

• Decision Date: 02 May 2006
• Docket Number: No. 05-P-574.,05-P-574.
• Citation: 66 Mass. App. Ct. 222,846 N.E.2d 418
• Parties: Nathan EIGERMAN v. PUTNAM INVESTMENTS, INC., & another.<SMALL><SUP>1</SUP></SMALL>
• Court: Appeals Court of Massachusetts

846 N.E.2d 418

66 Mass. App. Ct. 222

Nathan EIGERMAN v. PUTNAM INVESTMENTS, INC., & another.¹

No. 05-P-574.

Appeals Court of Massachusetts, Suffolk.

Argued March 9, 2006.

Decided May 2, 2006.

Joel Z. Eigerman, Boston, for the plaintiff.

Jonathan M. Albano, Boston, for the defendants.

Present: ARMSTRONG, C.J., DREBEN, & VUONO, JJ.

VUONO, J.

The plaintiff, Nathan Eigerman, a former employee of Putnam Investments, Inc., and Putnam Investment Management, LLC (collectively, Putnam), filed a one-count complaint for breach of contract in the Superior Court against Putnam seeking declaratory relief and monetary damages.² Eigerman claims that Putnam breached the equity participation terms of his employment contract, the Equity Partnership Plan (hereafter the Plan) by intimidating him in order to prevent him from tendering his shares of stock in Putnam in accordance with the terms of the Plan. A judge of the Superior Court granted Putnam's motion to dismiss the complaint pursuant to Mass.R.Civ.P. 12(b)(6), 365 Mass. 755 (1974), on the ground that Putnam's alleged offensive conduct could not constitute a breach of contract because the terms of the Plan stated that Putnam was not obligated to repurchase the stock. Eigerman appeals from the dismissal of his complaint. We conclude that Eigerman's complaint, indulgently read, see Federico v. Brockton Credit Union, 39 Mass.App.Ct. 57, 61, 653 N.E.2d 607 (1995), citing Nader v. Citron, 372 Mass. 96, 98, 360 N.E.2d 870 (1977), states a claim for breach of contract. Accordingly, we reverse the judgment of dismissal.

The lenient standard by which a complaint is measured on a motion to dismiss for failure to state a claim is familiar. "[T]he allegations of the complaint, as well as such inferences as may be drawn therefrom in the plaintiff's favor, are to be taken as true." Warner-Lambert Co. v. Execuquest Corp., 427 Mass. 46, 47, 691 N.E.2d 545 (1998), quoting from Blank v. Chelmsford Ob/Gyn, P.C., 420 Mass. 404, 407, 649 N.E.2d 1102 (1995). Doubts are resolved in favor of the complainant, and the motion must be denied unless it is certain that no set of provable facts could entitle the plaintiff to relief. Warner-Lambert Co. v. Execuquest Corp., supra. From this perspective, we summarize the facts alleged.³

The complaint alleges that Eigerman was employed by Putnam,⁴ participated in the Plan, and received Putnam's restricted Class B common stock pursuant to the Plan. Under the Plan, Eigerman had the option, during certain defined "window periods," to tender to Putnam his restricted Class B common stock, which Putnam could then purchase at a price set by formula. The Plan stated, however, that Putnam had "no obligation to purchase such Class B Shares."

In early 2002, Putnam management became concerned about the number of employees tendering shares to the company. On or about January 28, 2002, Putnam's chairman and chief executive officer, Lawrence J. Lasser, issued a memorandum (hereafter the Lasser memo) stating, inter alia:

"In ... 1997, when the ... Plan ... was introduced, I wrote that we had created the Plan because: `Putnam's goal has been to ... mix long-term motivation and rewards with short-term awards' [(emphasis supplied)]....

"[O]ne aspect of the [P]lan continues to prompt questions, the sale by [P]lan participants of vested Putnam Class B shares....

"I prefer we not establish a fixed policy [concerning participants' sales of Class B shares].... Thus the informal policy is to encourage recipients to hold Putnam equity, also recognizing it may sometimes become necessary to sell a portion of equity to meet personal needs. One example might involve taxes.... A sale of this type is acceptable and will not be questioned. We ask that prior to selling any Putnam equity during a window period for reasons other than meeting tax obligations, you discuss the reasons behind such a sale with your Operating Head. I have asked T. Hoffman to track sales of equity to allow us to develop a better understanding of why people reduce or divest their Putnam equity holdings, given the now better clarified view that Putnam equity is awarded as a long-term incentive vehicle" (emphasis original).

Eigerman alleges that the Lasser memo was a thinly veiled threat that Plan participants, such as Eigerman, would suffer adverse employment consequences if they tendered Class B shares to Putnam for reasons other than acceptable "personal need."⁵ As a result, Eigerman refrained from tendering his shares during the "windows" of spring and fall, 2002. He did not sell his shares to Putnam until he left Putnam's employ in 2003, at which time he realized about fifty-eight percent of the gain he could have had if he had sold his shares to Putnam during the 2002 window periods.

We review the motion judge's allowance of Putnam's motion to dismiss under rule 12(b)(6) de novo. See, e.g., Warner-Lambert Co. v. Execuquest Corp., 427 Mass. at 47-50, 691 N.E.2d 545. On the facts alleged, Eigerman has stated a claim for which relief may be granted on the ground that the Lasser memo restricted his right to tender shares for redemption by Putnam. Contrary to the motion judge's assumption, Putnam's assertion that it is not obligated to repurchase shares is not relevant to the issue whether Eigerman has alleged a breach of his right to tender. On a fuller record, evidence may indicate that Putnam consistently redeemed the tendered shares and thereby may have waived the provision not requiring it to redeem.

Eigerman claims that the Lasser memo was intended to prohibit Plan participants from offering shares for redemption during the window periods by threatening them with adverse employment consequences. It is true that the Lasser memo contains no explicit threat. However, the timing and the context of the memorandum, coupled with its statements that while the Plan's goal, when it was established, was to "mix long-term motivation and rewards with short-term awards," the "now better clarified view [is] that Putnam equity is awarded as a long-term incentive vehicle" (emphasis original), permit the inference, at this stage of the proceedings, that the Lasser memo unfairly deterred Eigerman from tendering his shares. Nothing more was required to survive a motion to dismiss.

In addition to asserting a claim for breach of contract, the complaint in this case alleges facts constituting a claim for a breach of the implied covenant of good faith and fair dealing. A complaint may not be dismissed if the facts alleged constitute any cognizable cause of action, even if the plaintiff has not articulated the specific cause of action. Kessler v. Cambridge Health Alliance, 62 Mass. App.Ct. 589, 592, 818 N.E.2d 582 (2004), citing Whitinsville Plaza, Inc. v. Kotseas, 378 Mass. 85, 89, 390 N.E.2d 243 (1979). "Every contract in Massachusetts is subject, to some extent, to an implied covenant of good faith and fair dealing." Ayash v. Dana-Farber Cancer Inst., 443 Mass. 367, 385, 822 N.E.2d 667, cert. denied sub nom. Globe Newspaper Co. v. Ayash, ___ U.S. ___, 126 S.Ct. 397, 163 L.Ed.2d 275 (2005), citing Anthony's Pier Four, Inc. v. HBC Assocs., 411 Mass. 451, 473, 583 N.E.2d 806 (1991). "This implied covenant may not be `invoked to create rights and duties not otherwise provided for in the existing contractual relationship.'" Ayash v. Dana-Farber Cancer Inst., supra, quoting from Uno Restaurants, Inc. v. Boston Kenmore Realty Corp., 441 Mass. 376, 385, 805 N.E.2d 957 (2004). However, the "purpose of the covenant is to guarantee that the parties remain faithful to the intended and agreed expectations of the parties in their performance" under the contract. Uno Restaurants, Inc. v. Boston Kenmore Realty Corp., supra. See Ayash v. Dana-Farber Cancer Inst., supra.

In the context of employment, the Supreme Judicial Court has recently held that an employer may be liable to an employee for a breach...